I’m a staff writer covering all things Wall Street and Investing. I have a love hate relationship with the world of finance. I am fascinated by the industry’s power and influence around the globe, and the ingenuity of the people it employs. Not so much a fan of the lack of accountability when the system fails—which it often does: I'm always on the hunt for people and companies to profile.

Wealth Management, Not Investment Banking, Keeps UBS On Top

UBSUBS surprised many investors today with profit levels that came in higher than expected in the first quarter.

The Swiss bank said profits in the first quarter rose 7% to 1.05 billion Swiss francs, or about $1.2 billion, from 988 million Swiss francs a year earlier. Analysts were expecting a drop to 838 million francs.

UBS, with CEO Sergio Ermotti at helm, has been undergoing significant structural changes particularly in investment banking where operations have been leaned down. Cost-cutting is also a major priority. In 2012 UBS announced it would fire 10,000 employees in investment banking, and it has already culled more than $300 billion in risky assets from its balance sheet.

While it’s been shifting its strategy away from being a pure investment bank, Ermotti has strengthened the role of the bank’s wealth management units including here in the U.S. where the Swiss institution houses 7,113 financial advisors.

“If we call ourselves the preeminent wealth management firm globally, then it would be impossible not to be a strong player in the biggest market in the world, the Americas,” Ermotti told FORBES earlier this year.

In the first quarter, UBS wealth management Americas reported a record adjusted profit before tax of $284 million. That’s up from $220 million from the same quarter last year, and represents some 17% of the Swiss bank’s adjusted profit before tax.

Operating income also hit a record with $1.865 billion, that’s up 10% from $1.696 billion last year.

“We are just scratching the surface,” Bob McCann, CEO of UBS Group America

Another important metric among wealth management businesses is revenue per financial advisor. UBS has one of the highest with $1.037 million up 8% from last year. Only Bank of AmericaBank of America Merrill Lynch advisors have a higher production number with $1.056 million per advisor in the most recent quarter. Keep in mind though, BofA Merrill’s 15,000 financial advisors have access to a full-fledged bank where access to banking products can drive productivity significantly.

McCann and his team are also working on growing its banking capabilities for its financial advisor base. Mortgages are a big part of that; in just over four year the unit’s mortgage business has grown balances from less than $100 million dollars in 2009 to over $6 billion at the end of the first quarter 2013. The growth rate is the highest among top 50 U.S. banks and thrifts with 68% between 2012 and 2013.

Today net interest income represents 14% of the unit’s revenue, and McCann is looking to get that number even higher. “We are just scratching the surface,” McCann told FORBES this morning before presenting at UBS investor day in Zurich.

McCann’s UBS counterpart is Jurg Zeltner who leads wealth management outside of the U.S. Their combined units represent about 60% of profit before tax for UBS.

So what’s next for the units? Cost efficiency is on the agenda. In a presentation to investors both Zeltner and McCann introduced new cost-to-income ratios. McCann’s new target is 75-85% from 80-90%, while Zeltner is aiming for 55-65% from 60-70%.

Meanwhile, UBS said today it is overhauling its corporate structure “to improve resolvability will allow the firm to qualify for a capital rebate under the Swiss ‘too-big-to-fail’ requirements.”

Instead of a single holding company that houses all of its global operations, UBS will create separate entities that will standalone therefore isolating any future problems. For example, In the US,it will create an intermediate holding company to hold all its US subsidiaries.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.

Comments

I’ve been a customer of UBS and they have served me reasonably well, but I wish they (and the industry) would find a better term for it than “wealth management”. Neither word seems appropriate. I refer to them as “my (full-service) broker”, which I hope implies that they actually know something about investments and don’t just try to sell me whatever’s on special.

Youre not totally off by calling it a full service brokerage. WM can be generic, and it’s used by a all sort of financial advisors and brokers. As for selling you whatever’s on special, it’s tough unless you know your advisor is acting as a fiduciary. Many of these big firms are slowly, very slowly, moving in that direction, or at least away from product-pushing. As a client, hitting them with the fiduciary question could be a good start.